Is buying off-plan cheaper?
2 years ago
An off-plan property is one that is made available for sale or purchase before its construction or completion. Put simply, buying a property off plan means that a buyer has committed to buy and pay for the property before the property is completed or at the project conception stage. So, is it cheaper or better to buy off-plan? Read on to find out.
The concept of off plan selling/buying has over the years gained ground in Nigeria particularly in Lagos. The common strategy employed by private property developers is the offering of hard-to-turn-down discounts and payment in installment options on properties prior to their ground-breaking or at the early stages of construction in a bid to attract buyers.
These developers use a wide range of media to publicize/advertise beautiful sketches, plans, 3D-designs, and virtual tours of the proposed development to woo prospective buyers to key into the concept.
The general structure of off-plane sale is such that an agreement is reached between the buying party and the selling party in which the former makes an upfront payment (usually between 10-20% of the property value) after which he agreed percentages of the balance in installments at different stages of the property construction until it reaches completion and ownership rights transferred to him.
On paper an off plan sale/purchase presents a win-win situation for both the seller and the developer, the buyer gets to buy at a discounted price compared to buying the same property at completion, while the developer on his own part has to rely less on bank loans to fund the ongoing project. The developer is also assured that he will not have to wait for long before the property is off the market once completed.
Below is a table showing prices of actual properties sold off plan in comparison to those sold after completion as found on some of the major property websites in Nigeria.
1.As seen above, off-plan properties tend to be offered at a discounted price. The reason for the discount may be traced to:
a.The risk of buying a property that is yet to be completed and
b.The reality that buyer who commits their monies to an off-plan property will have to wait for a considerable period of time before they can take possession.
2.The discount enjoyed on an off-plan property makes buying off-plan an attractive investment option. A buyer may either choose to sell his right to purchase the property off-plan to another investor at a higher price before the project is completed or wait till after the property is completed and its value has gone up.
3.In some cases, depending on the agreement, the buyer gets to be involved in the making of key decisions such as the kind/type of fixtures, fittings, furniture and fittings that will be used in the property, this no doubt can help save the buyer the cost of having to replace pre-installed fittings and furniture had he decided to buy a completed property.
4.The buyer may also be afforded the opportunity to pay for the property in installments rather than making a lump sum one-off payment.
5.Also, the sooner a buyer keys into a development project, the better their chances of getting choice units, land plots or views.
1.The major risk of buying off-plan is uncertainty. Uncertainty as to whether the developer can deliver the project within the stipulated time frame, or whether the project will be delivered as advertised (in terms of feel, design, quality of materials/finishes)
2.Fluctuations in the market, particularly one that results in a dip in market values may mean that a buyer whose intention was to hold the off-plan property as an investment may end up loosing money rather than making capital gains.
3.As earlier highlighted, buying off-plan means you don’t get to move into your property immediately after you make payment.
Well, I will say, yes. But there’s a caveat, you should know what you are doing and be willing to takes measures to mitigate the risks associated with buying off plan.
The importance of due diligence cannot be over emphasized; prospective buyers must be willing to put effort into researching the property developer offering to sell property off-plan. Their track record in the market should be scrutinized in terms of the quality of previous projects and how they fared in the market.
Location is another factor that must be considered. Buyers must ensure that they are purchasing in good locations with the potential to appreciate in value. In the same vein, buyers should only invest in property types that suit the neighborhood. It will make no sense to invest in luxury projects in a predominantly low-middle income neighborhood.
Another aspect that buyers need to pay attention to is contract terms. The terms of the contract must be duly scrutinized to avoid loopholes and ambiguity, the developer’s interest will no doubt be protected hence it behooves the buyer to have his legal representative review contract term in order to ensure that the buyer’s interest is also protected.